The Economics Show: Would Trump’s tariffs really be that bad?
Dec 1, 2024
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Kimberly Clausing, a UCLA professor and former lead economist in the Biden administration's Office for Tax Policy, sheds light on the potential impacts of Trump's proposed tariffs. She discusses how tariffs could affect multinational corporations, consumers, and the economy at large. Clausing challenges the belief that foreign exporters will absorb costs, emphasizing that U.S. consumers often bear the brunt. She also critiques the current U.S. tariff strategy, highlighting its favoritism towards large corporations and arguing for a fairer economic approach.
Trump's proposed tariffs, while potentially harmful, may not lead to the same economic devastation as previously feared due to the Biden administration's experience.
Experts argue that tariffs could worsen economic inequalities without addressing the root issues, suggesting progressive tax reforms as more effective solutions.
Deep dives
Trump's Tariff Promises and Economic Implications
Trump has proposed new tariffs for his upcoming term, including a broad 10% tariff on all trading partners and a significant 60% tariff on imports from China, raising concerns about their potential economic impact. Analysts suggest that these tariffs could be quite damaging, with predictions of them rating around eight or higher on a scale assessing their harm. The discussion highlights the complicated interplay between trade policies and overall economic health, suggesting that, combined with other economic policies, these tariffs could lead to severe inflation and job losses. Concern is also raised over the limited executive authority on tariff implementation, with many arguing that Congress would likely intervene against such sweeping changes.
Potential Challenges and Resistance to Tariffs
There's optimism that political and business interests may sway Trump away from implementing these aggressive tariffs, similar to how advisors influenced his decisions during his first term. However, doubts linger regarding the current political landscape, where fewer 'adults' may guide him towards more favorable economic choices. Many believe that without intervention from influential business figures, Trump may proceed with his aggressive tariff promises, emphasizing his long-standing admiration for tariffs as a policy tool. The combination of his economic priorities and surrounding political dynamics suggests a higher likelihood of real tariff implementation despite theoretical constraints.
Trade Deficits and Retaliation Risks
The conversation highlights skepticism surrounding the effectiveness of tariffs in addressing the U.S. trade deficit, arguing that previous policies have failed to produce desired results. Some argue that imposing tariffs could provoke retaliation from trading partners, which historically leads to trade wars that damage economies globally. The belief is that such retaliatory measures might offset any perceived gains from new tariffs, ultimately perpetuating a cycle of economic harm rather than relief. This situation poses a significant risk of stagflation, where rising prices and stagnant growth occur simultaneously, indicating that careful consideration is essential in navigating tariff implementation.
Broader Economic Consequences and Tax Implications
While tariffs are often justified as a means to protect domestic industries, experts argue that they may exacerbate existing economic inequalities without delivering substantial benefits to workers. The discussion points toward raising corporate tax rates and reforming international tax policies as more direct approaches to alleviate wealth inequality. Critics assert that reliance on tariffs instead represents a superficial solution that might distract from necessary structural changes in economic policy, potentially leading to greater stagnation. This perspective urges lawmakers to consider more progressive tax reforms that could directly benefit lower-income populations rather than increasing burdens through tariffs.
Trump is returning to office with many of the same policies that characterised his last term. And for economists, none looms larger than the prospect of significant new tariffs. But are tariffs really as destructive as feared? After all, the Biden administration maintained most of them and the economy has remained strong. Today on the show, we put the question to Kimberly Clausing, a professor at UCLA, and formerly lead economist in the Biden administration's Office for Tax Policy.
Soumaya Keynes writes a column each week for the Financial Times. You can find it here
